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New labor market data shows loss of public sector jobs is harming growth

RALEIGH (Aug. 17, 2012) — Large-scale layoffs in the public sector are causing the first increase in North Carolina’s jobless rate in more than a year, new data show.

The state’s unemployment rate climbed to 9.6% last month, driven mostly by large-scale layoffs in the public sector, according to new labor market data released by the Division of Employment Security this morning. This marks the first increase in the state’s jobless rate since July of last year.

Although North Carolina experienced solid private sector job growth last month with the creation of 16,000 new jobs (seasonally adjusted), these gains were almost completely wiped out by the 14,200 reduction in public sector employees—100% of which came from local governments. Given that summer always sees fluctuations in hiring, it is important to also consider year-over-year changes.

Looking at government employment over the last year, we see a similar trend. Without the 5,900 public sector layoffs experienced in the last 12 months, the number of total nonfarm jobs created in North Carolina since July 2011 would have been 16 percent higher, and the state’s unemployment rate would have been 9.4 percent -- unchanged from the jobless rate over the past three months.

“While we expect to see some changes in government employment due to seasonal hiring patterns, the long-term trends demonstrate the harm inflicted on the economy by laying off government employees in the middle of an already challenging economic recovery,” said Allan Freyer, Public Policy Analyst with the NC Budget & Tax Center. “Just as with private sector layoffs, government layoffs increase the number of people out of work. And given that there are already nearly three times the number of people looking for work than there are job openings, these public sector layoffs only serve to increase overall unemployment.”

Along with the fragility of the national economy and the Eurozone crisis, these government layoffs are contributing to what appears to be another summertime stall in the state’s labor market recovery. While these government layoffs have clearly increased the total number of unemployed, these public sector layoffs have also held back private sector job growth: those former government workers—now unemployed workers—no longer have paychecks to spend at private businesses, leaving these private businesses with less money to hire new workers.

“Given the trends we’ve seen over the last year, it is clear that increasing unemployment through government layoffs does not reduce joblessness,” said Alexandra Sirota, Director of the BTC.